The new global reality for business

The new global reality for business

Lenses, both real and metaphorical, can be very useful things. They provide vision and clarity – but use the wrong ones, and things start to appear blurry. A hundred years ago “the war to end all wars” came to an end. The vision of those that framed the Treaty of Versailles came crashing down only 20 years later, and the period will forever be seen through the lens of the inter-war years.

A century later, we are definitely inter-something, as the seams of the post-war liberal consensus come apart under the strain of nationalist populism and intensifying geopolitical competition. The far-sighted economic and security architecture of Pax Americana, which underpinned the economic miracles of Western Europe and East Asia, is now seen as a raw deal in Washington and the Rust Belt. Instead of being regarded as a triumph of human development, China’s emergence from poverty as an economic superpower is viewed through the lens of strategic rivalry in a “new Cold War”. “Great powers” have been unshackled from irksome international community norms and oversight to pursue dreams of national greatness. The familiar world order, to borrow a favourite term of Xi Jinping, Donald Trump and Narendra Modi, is increasingly “fractured”.

International businesses in 2019 will mourn the demise of the post-war liberal consensus because it was demonstrably good – for them. Since the end of the Cold War, multinationals have massively increased their share of the global economy and now dominate global trade – around two-thirds of it, according to the UN – through global supply chains. Multinationals often maintain traditional national associations, but are predominantly stateless when it comes to assets and employees.

A global footprint naturally increases exposure to the vagaries of geopolitics, from trade wars to real conflict. But recently, the degree of political risk faced by companies has intensified. A generation of business leaders conditioned by globalisation finds itself on the sharp edge of fierce national competition for jobs, technology and tax revenue. These business leaders are having to quickly recalibrate. Locating a new factory or attending an international summit is now a political statement as much as a commercial and operational consideration. In a fractured world order, the business of business is no longer just business.

Some international businesses are responding by developing strategies and structures to survive in markets mired in trade disputes or other major geopolitical change. To take one common example, “how to future-proof my supply chain in China” used to be an essay question answered by security and risk managers: who is going to defraud it, and where might physical disaster strike? Now it’s the subject of board-level “corporate security councils” interrogating how to “mitigate the impact of US commercial nativism” and “navigate the newfound assertiveness of Xi Jinping’s industrial policy”. They must increasingly also grapple with divergent North American, European and Chinese internet regulations that are beginning to geopoliticise data storage and usage. Put simply, companies are waking up to the need for an approach to market strategy that doesn’t simply bolt on political risk to more numeric approaches to assessing opportunities. In both Iran and Myanmar the numbers screamed “let’s go!” until the politics of sanctions and ethnic cleansing respectively got in the way.

Counterintuitively, a key challenge for business in 2019 will be to avoid being overly distracted by geopolitical drama. Foreign companies ensnared by corruption scandals, capricious regulatory implementation or attacks on local partners often find they were not focusing on local, material threats to their business.

Take Asia. It wasn’t superpower proxy competition that upended Malaysia’s political landscape in 2018, leading to a regulatory shake-up, corruption investigations and project cancellations. Nor did geopolitical rivalry trigger the persecution of the Rohingya in Myanmar and the ensuing reputational unease for foreign multinationals.

Meanwhile, the brief success of Islamist extremists in the Philippines was as much to do with southern Mindanao’s chronic mismanagement and religious nationalism as anything conceived on the battlefields of Syria. Similarly, domestic legislation has played as great a role as the territorial losses of Islamic State (IS) in reducing violence in Mindanao.

Going forward, key regional risks for 2019 – Indonesian elections, Prime Minister Modi’s bid for a second term, and the prospect of Thai elections – are all driven by how the local interplays with the geopolitical.

The same holds true worldwide. In Europe, regional political developments have the whip hand in 2019, from the obvious (Brexit, the succession to Angela Merkel, and Italian budget shenanigans) to the obscure (European Parliament elections). While these will ultimately impact on Europe’s capacity as a geopolitical player, they are driven by a broad rejection of centrist political parties as increasingly detached from domestic concerns.

In Latin America, the big business story in recent years has been the political impacts of the sprawling Operation Car Wash anti-corruption investigation. In 2019, new administrations in Mexico and Brazil – and an old one in Venezuela – are poised to dominate corporate risk.

The dramatic political changes seen across Africa over the past year have similarly been driven as much by local pressures as global trends. Robert Mugabe survived almost two decades of sanctions, but his 37-year rule was brought to an end by personal ambitions and succession battles within the ruling Zimbabwe African National Union – Patriotic Front (ZANU-PF). The ambitious reform agendas of Angolan President João Lourenço and Ethiopian Prime Minister Abiy Ahmed shaped by external pressures, but have been primarily motivated by domestic political circumstances. For all the talk of rising populism in Europe and elsewhere, leaders across Africa – albeit with notable exceptions – have broadly shifted towards pragmatism in their willingness to liberalise markets and strengthen regional cooperation.

Business can’t drop one ball to pick up another. It can’t lose track of prosaic local risks to focus on global issues. But it may not have local risks to manage if it falls foul of fundamental changes in geopolitics. Doing business across borders is getting harder, and doing business within them is getting more bespoke.

It’s not clear what future lens will be applied to this era. A US-China cold war? A revived liberal consensus led by like-minded middle powers such as Japan, Canada and Germany, with avuncular approval from China? Or, more darkly, the inexorable slide into conflict as one power rises to challenge the established one.

Regardless, the lenses that companies use to understand their world will need to be multiple and more complex than ever before. As such, companies need to rigorously prioritise what really matters to them – commercial, political, global, local – and be constantly mindful of where those strands intersect. The onus on corporations is unprecedented.